895 F.3d 695
9th Cir.2018Background
- Yahoo! obtained an exemption from the Investment Company Act (ICA) in 2000 allowing certain investments so long as it invested for bona fide business purposes and avoided short‑term speculation.
- Yahoo! made a large investment in Alibaba; by 2016 its remaining Alibaba stake was worth about $27 billion, dwarfing its internet business.
- UFCW Local 1500 Pension Fund sued in 2016 alleging Yahoo! violated the ICA exemption conditions (by its Alibaba investments) and therefore had been operating as an unregistered investment company since at least 2013.
- UFCW brought derivative claims against Yahoo! directors and officers and a direct claim against Yahoo!, seeking rescission of contracts, injunctions (including blocking asset sales), and unjust enrichment damages.
- The district court dismissed the suit, concluding the ICA does not permit courts to strip or revoke an exemption in the first instance; the Ninth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the ICA creates a private right of action to challenge the continued validity of an SEC‑granted exemption | UFCW: Section 47(b) (and the ICA generally) allows private suits to rescind contracts and thus to challenge exemptions | Yahoo!: The ICA assigns revocation and enforcement to the SEC; the statute lacks rights‑creating language and forecloses private remedies | No private right exists to challenge an ICA exemption; claims fail |
| Whether Section 47(b) implies a private remedy to rescind contracts formed in violation of the ICA | UFCW: Section 47(b) renders contracts unenforceable and implies a private remedy to rescind such contracts | Yahoo!: Section 47(b) does not create an express private right; the ICA’s structure and enforcement scheme show Congress did not intend private enforcement here | Section 47(b) does not establish a private cause of action to pursue the broad rescissions UFCW seeks |
| Whether derivative claims can proceed absent a statutory private right of action | UFCW: Derivative claims need not rely on an express private right of action | Yahoo!: Derivative claims that depend on statutory violations still require a private right when the claim seeks statutory enforcement/remedies | Derivative claims premised on challenging the exemption fail for lack of any private right of action |
| Whether courts may, in the first instance, revoke or strip an ICA exemption or enjoin transactions based on alleged exemption violations | UFCW: Courts can enforce ICA consequences (e.g., unenforceability, injunctions) against companies that violate exemption conditions | Yahoo!: ICA assigns initial determination and revocation to the SEC; allowing courts to do so would interfere with SEC primacy and statutory scheme | Courts cannot be the first to strip an exemption or enjoin based on alleged violations; SEC procedures control the initial response |
Key Cases Cited
- Packingham v. North Carolina, 137 S. Ct. 1730 (context on Yahoo!'s history)
- Alexander v. Sandoval, 532 U.S. 275 (private rights of action must come from Congress)
- Northstar Fin. Advisors, Inc. v. Schwab Invs., 615 F.3d 1106 (ICA’s structure forecloses implied private enforcement)
- In re Digimarc Corp. Derivative Litig., 549 F.3d 1223 (derivative claims require a private right of action to enforce statutory provisions)
- RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639 (specific statutory solutions govern over general provisions)
- Whitman v. American Trucking Ass’ns, Inc., 531 U.S. 457 (Congress does not hide major policy changes implicitly)
- Santomenno ex rel. John Hancock Tr. v. John Hancock Life Ins. Co., 677 F.3d 178 (limits on reading implied rights under other statutes)